SGICL implemented the method of providing the initial claimed amount by the insured as the OSLR in the system at the time of claim intimation. The provision for OSLR remained same in the system until the settlement of the claim. In order to arrive at OSLR at the time of valuation, the insurer had estimated (‘Paid to estimate %’) i.e., intimated claim amount to paid amount percentage based on past experience. There is an element of subjectivity in the estimation of ‘Paid to estimate’  percentage  to arrive at

 

 

OSLR at the time of valuation. In this regard, the method or process of arriving at the percentage and factors used for different segments to estimate OSLR were not discussed in  Chapter- 8 ‘Reserving’ of Financial Condition Report (FCR) or Appointed Actuary’s report on estimation of reserves for IBNR claims.

 

However, as per the method adopted by the insurer, negative outstanding reserves would result for some of the known claims and also it is observed that the insurer is not taking into consideration the surveyor report recommendations.     

 

Violation ofSection 2(ii)(b)(I) of Regulation 4 (Schedule IIB) of IRDA (ALSM) Regulations, 2000, which prescribes that the amount is to be provided in full where the amounts of outstanding claims of the insurers are known.

 

 

 

Decision:  The submission  made by the insurer, is taken note of.   However, the insurer is directed to comply with  Clause 3(2)(a) of Schedule II under Regulation 5  of IRDA (ALSM) Regulations, 2016.

 

2.  Charge No.2:   

It was observed from top 20 policies of Motor OD and Personal Accident and its underwriting documents that several of the policies are sourced through unlicensed persons /entities. The examination of 26 sample policies revealed that the premium was booked under direct code but the intermediary code on the cover note/proposal/quality check form proves the involvement of unlicensed persons/entities in soliciting and procuring business.

 

The third instance of business being sourced through unlicensed persons/entities is that in 10 policies out of top 20 policies, though the business was said to be sourced through an intermediary / producer, the name of that intermediary / producer was not appearing on the policy documents.   It is evident from the underwriting documents viz. proposal form / cover note / receipt that the said policy was sourced from an unlicensed entity and booked under code as per policy document. 

 

 

 

 

 

 

Decision: The submissions made by the insurer were considered.Although the insurer has furnished an undertaking that it did not make payment of any commission or any other pay outs towards procuring business under direct channel but it is observed that the service providers viz. SVS and STFC were given access to the policy administration system of the Insurer. The detailed steps described in the process of writing business indicate that the service providers were involved in procuring business which is violation of IRDA circular ref.no. IRDA/Cir/010/2003, dated 27.03.2003.   Hence under  the powers vested  in the Authority under Section 102(b) of Insurance Act 1938, a penalty of Rs.5,00,000 (Rupees  Five lakh only) is levied on the General Insurer. The General Insurer is further directed to discontinue such practice of involving the service providers in the distribution of insurance product.

 

Charge No.3: It was found from examination of sample policies that the insurer has allowed discounts up to 85% under Fireand up to 71% under engineeringsegments on the base rates filed.

 

Violation of point 1, 3(ix), 8 & 11   of F&U guidelines dated 28/09/2006 by offering discounts other than those filed & approved by IRDA.

 Charge No. 13: The sample top 20 polices issued for Group Personal Accident insurance in the year 2011-12 were examined.     The underwriting for these Group PA policies is based on experience.   It was observed from the said examination of the said policies that the insurer had allowed more than stipulated group discount / underwriting discount to its associate / group companies. 

 

 

 

 

Charge No.16: The GPA policy no. 421010/48/11/000140 for the period 10-10-2010 to 09-10-2011 was issued to M/s. Shriram Group Companies i.e. associate / group companies of the insurer. The premium for the said policy amounting to Rs. 87.50 Lakhs (excluding Service Tax) was debited to CD account no. AB0000000138.   The insurer had issued this policy with warranty that, “the policy is on adjustable basis at the end of the year, Based on auditor’s certificate for number of employees and gross salaries paid”.  As per the filed version of the product, there is no such provision.    Also the insurer had charged a rate by allowing a discount of 53.33% on the filed rate.

 

1. F&U guidelines 021/IRDA/F&U/Sep.06 dated 28.09.2006

2.  Circular No. IRDA/NL/CIR/F&U/003/01/2011 dated 06.01.2011 which stipulates that practices like offering of premium rates outside the range filed with IRDA, offering discounts in premium etc. will attract penal action.

 

 

 

Insurer has violated provisions of F & U guidelines 021/IRDA/F&U/Sep.06 dated 28.09.2006 and also violated circular no. IRDA/NL/CIR/F&U/003/01/2011 dated 06.01.2011 which prohibits practices like offering features and discounts in premium other than that filed with and approved by the Authority.

 

For the above violation, under the powers vested in the Authority under Section 102(b) of Insurance Act 1938, a penalty of Rs.5,00,000 (Rupees  Five lakhs only) is levied on the General Insurer.   Also the General Insurer is further directed to discontinue such practice of deviation from the terms and conditions filed with and approved by the Authority.  

 

4. Charge No. 4:   Reinsurance Cessions to Indian Reinsurer (GIC Re):    It was observed from the statement RI 1 that the insurer has ceded only 5.67% and 4.70%, for 2010-11 and 2011-12 respectively of the premium for different classes of insurance written in India to the Indian reinsurer as specified by the Authority in accordance with the provisions of Part IVA of the Insurance Act, 1938 and Reg. 3.3 of IRDA (General Insurance - Reinsurance) Regulations, 2000.

 

Violation of Regulation 3.3 of IRDA (General Insurance - Reinsurance) Regulations, 2000.

 

Decision: The submission of the insurer is accepted and the charge is not pressed.

5.    Charge No.5: Insurer is not furnishing a copy of proposal to the insured within 30 days of acceptance of risk. This is violation ofRegulation 4(1) of the IRDA (Protection of Policyholders’ Interests) Regulations, 2002.

Decision:Insurer’s submission is accepted and the charge is not pressed. However it is the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form.  As such, the General insurer is advised to ensure compliance to the provisions of IRDA (Protection of Policyholders’ Interests) Regulations, 2002.

 6. Charge No.6: The insurer is recording the information obtained orally or in writing. However, no confirmation or communication of the same   is done within a period of 15 days thereof with the proposer though such information is incorporated in the policy. This is a violation ofRegulation 4(4) of the IRDA (Protection of Policyholders’ Interests) Regulations, 2002.

 

7.Charge No.7 :   No standard Reasons were recorded for claims closed / Repudiated without payment. Following reasons were observed from the statement submitted:

 

 

 

 

Decision: The submission made by the insurer is accepted and the charge is not pressed further.    Still, the insurer is advised to strictly adhere to the guidelines contained in Circular No.IRDA/HLTH /Misc/cir.216/09/2011 dated 20th Sep, 2011.

8. Charge No.8:  The examination of the sample claim files proves that the provisions of GR-8 are deviated albeit the reasons were provided therein in claim notes. The insurer has not documented standard procedure in considering the claims on non standard/substandard basis.

 

The insurer`s settlement of claims for reduced IDV in theft claims for whatever reasons is contrary to the provisions of GR-8 of Insured Declared Value of IMT, 2002. The insurer, therefore, absolved itself of the responsibility of paying due attention to the IDV in the policies and settled claims for less than IDV.

 

 

 

Decision: As per the observation, there was no mention that the claims are paid on sub-standard basis. The insurer’s action of settling the theft claims total loss/constructive total loss of vehicle, for amounts less than the IDV is violation of GR 8 of the Indian Motor Tariff.   The insurer’s explanation by reference to a portion of GR 8 is not relevant to the violation pointed out in the observation.   Therefore, for the violation of GR 8 of Indian Motor Tariff, under  the powers vested in the Authority under Section 102(b) of Insurance act 1938, a penalty of Rs.5,00,000 (Rupees  Five lakhs only) is levied on the General Insurer.   Also the General Insurer is directed to ensure compliance of GR 8 of the Indian Motor Tariff.  

 

9.     Charge No.9: The insurer is allowing underwriting discounting upto 70% for vehicles on Own Damage premium only of Motor Erstwhile Tariff. The insurer violates Point 1, 3(ix), 8 & 11 of F&U guidelines dated 28/09/2006 by offering discounts other than those filed with & approved by IRDA.

 

 

 

Decision: Insurer’s justification based on overall discount indicates that they are applying differential discount rate across policyholders with similar risk factors. The insurer did not provide proper justification in the referred case where they have applied a discount of 70% for vehicles on Own Damage premium; as such this is a deviation from the rate approved in the File and Use.   Hence the Insurer is directed to ensure that the discount, if any, is applicable at individual risk level and not at overall level because the TAC rate is based on individual risk. The insurer is further directed to ensure that it does not allow discount beyond the limit as approved under File and Use and the board approved underwriting policy.

 

10. Charge No.10: It was observed from top 20 motor policies that the insurer had applied imposed excess. The said application of imposed excess was not communicated to the proposer / insured before entering into contract. 

 

Following issues are also noted this regard:

 

a.    The information about adverse claim experience was not available on the proposal form.

b.    Out of above mentioned four sample cases in three cases, the vehicles were brand new vehicles.

c.    Though as per brokers slip deductible should be as per IMT only, the insurer applied imposed excess on these policies.

d.    The motor insurance business underwriting guidelines / manual of the insurer does not specify any underwriting criteria based on which the said imposed excess was applied. 

 

The above mentioned point No. (a) to (d) are in contravention of File and Use guidelines issued by the Authority and IRDA (Protection of Policy Holders’ Interests) Regulations, 2002.

 

1) Point 1, 3(ix), 8, 11 & 26 of F&U guidelines dated 28/09/2006 offering different terms other than those filed with & approved by IRDA and circular no. IRDA/NL/Cir/F&U/003/01/2011 dated 6^th January, 2011.

 

2) Violation of circular 048/IRDA/De-tariff/Dec07 dated 18^th Dec,2007, circular no.066/IRDA/F&U/Mar-08 dated 26^th March, 2008 & cir.no.019/IRDA/NL/F&U/Oct-08 dated 6^th Nov, 2008 by changing the terms and conditions of Indian motor tariff.

 

3) Clause 6 of corporate governance guidelines by deviating from their internal underwriting guidelines/manual by imposing excess.   

 

11.       Charge No.11:  Motor OD Claim Vehicle No. OR-05-R-6161, HP Agreement with STFC Ltd., Broker: RSIBP Ltd.

This is a claim case where the financier was M/s. Shriram Transport Finance Co. Ltd. and for single event of loss the claim was registered and paid on two different policies i.e. on earlier policy and on renewal policy.  

 

 

12. Charge No.12 : It was observed from the data for Motor OD claims repudiated that the insurer in the financial year 2011-12 had repudiated 9544 claims. The reasons based on which repudiation was done were not found in the General Exceptions / conditions of the policy. 

 

This is violation of the Regulation 9(5) of the IRDA (Protection of Policyholders’ Interests) Regulations, 2002, which mandates the insurer to record and communicate to the insured the reasons for repudiation of claim.    

 

 

The insurer’s submission and the sample repudiation letters furnished by them have been taken note of. Since they have started to convey to the insured the reasons of repudiation of claim, the charge is not pressed. However, it is strictly emphasized upon the insurer to follow the provisions of IRDA (Protection of Policyholders’ interests) Regulations, 2002.

 

 

 

 

 

 

The insurer has submitted that hereafter they will settle the claim in favour of the insured and not in favour of the group entity.

Decision:     Para C (7) of Authority’s  circular No.15/IRDA/Life/Circular/GI Guidelines / 2005 dated 14-07-2005 clearly mentions that in the case of non-employer employee group policies, issue of certificate of insurance is necessary and claims arising out of such policies should be settled directly to the insured. In the light of this position, Insurer is warned against continuing with such practices even after the violation being pointed out in inspection report and directed to strictly follow the guidelines contained in Circular No.015/IRDA/Life/Circular/GI Guidelines / 2005 dated 14-07-2005

 

14. Charge No.15: The insurer had marketed Group JPA policies with the following deviations from the filed product: 

 

i)     As per point no. Sum Insured (b) of filed version of the JPA product “Maximum Sum Insured would be generally be Rs. 1,00,000/- and Minimum Sum Insured for each member would be restricted to Rs.25000/-.”  But in the policies examined, the Sum Insured offered by the insurer was Rs.10000/-.    Thus, as per said filed product the sum insured of Rs.10000/- could not be granted.

ii)    The rate filed in the file & use version filed is Rs. 15/- for the Sum Insured of Rs. 25000/-, accordingly for the Sum Insured of Rs. 10000/- the rate will arrive at Rs.6/-. As against that,  the insurer had charged Rs.7/- per person for Sum Insured of Rs.10000/-.

Violation:  The insurer by offering unapproved premium rate and Sum Assured, in the above cases committed violation of point 3(ix) & 11 of F&U guidelines contained in Circular No.021/IRDA/F&U/Sep-2006 dated 28/09/2006  

 

 

 

The insurer has submitted an Undertaking to the effect that they had issued only one policy in four years.  

 

Decision:    The insurer’s submission that they had issued only one policy is taken on record. However, the insurer is warned against issuing policies with terms and conditions at variance with that filed with and approved by the Authority. 

 

15. Charge No.17 :  

 

As per the quote sheet for GPA policy no. 421010/48/11/000140, the basis of sum insured is auditor’s certificate on number of employees and gross salaries paid. Accordingly, the insurer had adjusted the policy based on auditors’ certificate. Based on above submission, the insurer had to receive premium amount of Rs.34.25 lakhs against the above policy. Upon examination of said Auditors certificate, it was observed that the auditor had certified the salary paid to the employees of the concerned company but there was no specific certification about number of employees. Even though the warranty mentioned in the policy was breached, the insurer had accepted the said certificates as the policies were of its own associate / group companies. 

 

The insurer had 2241 Cash Deposit accounts (CD Accounts) in its books as on 31-12-2012.   The sample of CD Account no. AB0000000138 registers for 2010-11 to 2012-13 (upto Dec. 12) in the name of M/s. Shriram Group of Companies was examined. The issues observed are as under;

 

i)     For the GPA policy no. 421010/48/11/000140, the premium amount of Rs. 34.25 Lakhs (including Serve Tax) was to be received from the insured. It was noted from the CD Register for CD account no. AB0000000138 for the period 2010-11, 2011-12 and 2012-13 (upto Dec.12) that the said amount of Rs. 34.25 Lakhs was not recovered from the insured / debited to the CD account.

ii)    The delay in ascertaining the amount as premium from the date of inception of risk was ranging between 3 to 143 days

iii)   It is pertinent to note that in 27 cases out of 28, the insurer had assumed the risk without having sufficient premium in the concerned  CD account, as on the date of inception of risk.

iv)   For the above mentioned 27 policies, the premium amounting to Rs. 594.59 Lakhs was not received in advance i.e. before assumption of risk.

v)    The insurer had favored its associate / group companies by assuming the insurance risk without receipt of premium in advance.

vi)   Thus, it is evident that the insurer had assumed the risk without the receipt of premium in advance. Further, the balance premium for the said risk was not recovered / debited to concern CD account by the insurer.

 

Violation of Section 64VB (1) & (4) of Insurance Act, 1938.

 

 

Decision:    The insurer has attached a letter from their banker conveying the details of the cheques and the date of clearing which indicate that the premium was received before the insurer assumed the risk.     Hence, accepting the submission of the insurer, the charge is not pressed.

 

 

 

Member (F&I)

Place: Hyderabad

Date : 25^th July, 2016